By Reed Stevenson
SAN FRANCISCO (Reuters) - A federal appeals court on Wednesday overturned a $521 million patent infringement ruling against Microsoft Corp. and ordered a lower court to retry the case against the world's largest software maker.
The U.S. Court of Appeals for the Federal Circuit said the original verdict, which found that parts of Microsoft's Internet Explorer Web browser had infringed on technology developed by privately held firm Eolas Technologies Inc. and the University of California, had ignored two of Microsoft's key arguments.
The case sparked concerns that Microsoft would have to alter its Internet browser, making it unable to run certain applets, or mini-applications, that run on Web pages. Microsoft's browser is used by 9 of every 10 Web surfers.
But a year ago, Microsoft won a ruling by the U.S. Patent and Trademark Office, which invalidated a claim by the plaintiffs to the browser technology that allows other mini-applications to work with Microsoft's Internet Explorer.
"We have maintained throughout this process that the Eolas patent is not valid and today's ruling is a clear affirmation of our position," Microsoft spokeswoman Stacy Drake said in an e-mailed statement.
Martin Lueck, the lawyer heading the business litigation group at Robins, Kaplan, Miller & Ciresi LLP that represented Eolas, was not immediately available for comment.
Redmond, Washington-based Microsoft said it was looking forward to presenting its case again. No date has been set for a retrial.
In Wednesday's ruling by the Appeals Court judges, they said "this court vacates the district court's decisions and remands for further proceedings on these issues," according to court documents.
In 2003, an Illinois jury delivered a $521 million verdict against Microsoft, saying it infringed on technology developed by Eolas and the University of California. That ruling was later upheld in early 2004 by Judge James Zagel of the U.S. District Court for the Northern District of Illinois.
In response, Microsoft said it would prepare a version of Internet Explorer without the technology in question, but held off on making key changes after the patent office said it would reexamine the Eolas patent.
Internet standards groups, including the World Wide Web Consortium, had argued that preexisting inventions may invalidate Eolas' patent claims.
Pressure from software developers that depend on Microsoft's Internet Explorer also likely prompted the company's decision to hold off on making changes.
Lueck, the lawyer for Eolas, had previously said his client was still open to a settlement with Microsoft. Microsoft's Drake declined to comment on the possibility of a settlement.
Shares in Microsoft closed down 2 cents on Nasdaq on Wednesday at $25.26. (Additional reporting by Peter Kaplan in Washington)
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